Sri Lanka unveils $1.5 billion relief as food prices surge
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A street food vendor setting up his stall and waiting for customers at Galle Face promenade in Colombo on Jan 1, 2022.
PHOTO: AFP
COLOMBO (BLOOMBERG) - Sri Lanka will increase pay and pension for government employees, remove some taxes on food and medicine, and provide cash for its poorest citizens as prices of essential items surge in the nation that is running out of foreign exchange to pay for imports.
President Gotabaya Rajapaksa's government will increase salaries of public sector staff by 5,000 rupees (S$33.20) a month from January, his brother and Finance Minister Basil Rajapaksa said in a briefing in Colombo on Monday (Jan 3).
About two million people on income support will receive 1,000 rupees each, and the administration will also buy crops at higher-than-market rates from farmers who suffer losses due to a government rule to stop fertiliser use.
In total, the package amounts to 229 billion rupees (S$1.5 billion), about 1.2 per cent of gross domestic product, and will be reallocated from the 3.9 trillion rupees budgeted to be spent in the whole of 2022. No new taxes will be announced, Mr Rajapaksa said.
The moves seek to calm public anger about rising prices of wheat, sugar and milk powder, which the island nation is struggling to purchase from abroad as the local currency depreciates and inflates its import bill.
The coronavirus pandemic has hurt Sri Lanka's crucial tourism sector, stoking debate among policymakers about whether it should seek a bailout from the International Monetary Fund (IMF) or rely on bilateral emergency support from nations including China and India.
Sri Lanka's sovereign dollar bonds were mostly steady on Tuesday, holding on to recent gains. The government has not made a decision on whether to seek IMF support, Mr Rajapaksa said. Notes due March 2030 were trading at 51 US cents on the dollar, while those maturing in July 2022 were at 69.7 US cents.
Sri Lanka has US$500 million (S$678.6 million) of dollar bonds maturing on Jan 18 and another US$1 billion in July. It has US$3.1 billion of foreign exchange reserves, roughly enough to pay for two months of imports, based on extrapolations from previous government calculations. Headline inflation accelerated to 12.1 per cent in December, the second-fastest pace in Asia after Pakistan.
